The lure of easy Personal Loans makes people fall for it and then pay large chunks of their income in EMIs. The tips discussed here can help you from falling into a debt trap.
Banks offer personal loans like hot cakes. With technology’s help, personal loans can even be taken from the comforts of your home via internet banking. But as it gets more convenient, more the chances of consumers falling into the trap of personal loans and struggling, later on, to pay them off. Experts suggest that your loan EMIs should never be more than 50 percent of your income. But still, the lure of easy personal loans makes people fall for it and then pay large chunks of their income in EMIs. However, there are some smart consumers who do all the research, read the fine print and check their repaying ability before opting for a Personal Loan.
But with the dynamic banking and financial scenario what precautions should one take after availing a personal loan?
Here are some tips:
Make Timely Payment: Paying your loan EMIs on time is extremely important to avoid any negative impact on your Credit Score. You may hold other investments to pay the regular EMIs. Of all the loans, you must take precautions to pay your credit card dues on time or else you will be charged with non-payment penalty and a whopping interest on outstanding dues.
Inform Your Family Or Spouse: Usually, personal loans are taken to meet short-term financial requirements and the borrower tends to avoid discussion with the family or his or her spouse on it. But you should always take your immediate family into confidence while opting for a personal loan. It also helps to explain to the family the financial implications of a personal loan EMI on the routine household expenses.
Security: If you have taken a high ticket-personal loan to meet a demand such as house renovation, make sure you have a security cover or a Term Plan to pay off the debt if anything untoward happens to you. You would not like to pass on your debt to your beneficiaries. Banks may offer you an insurance to cover the risk when taking a high-ticket personal loan. But you should go for an independent term plan to secure yourself for a longer duration against all risks.
Use The Personal Loan Wisely: You should never take a personal loan to invest or splurge on a vacation or a materialistic need. Also, when you take a personal loan to invest, the rate of interest you pay on the borrowed money won’t match with the returns on the investment. For example, you take personal loan to invest in Fixed Deposit or bonds. The interest charged on loan would be much higher than the interest that will accrue on the investment you make. If you invest in equity, it is subject to market risks, which can incur losses and saddle you with the regular EMIs as well.
Look To Substitute The Personal Loan With A Cheaper Option: Personal loan is one of the most expensive borrowing tools in the financial market. It should be your last option. Generally, it charges an interest rate of 16 to 20 percent. You should always strive to substitute a personal loan with a cheaper option. You can try other cheaper options such as loans against gold, fixed deposits or insurance policies to pay off the outstanding dues on the costly personal loan.